International Banking Study Calls Centralized Crypto Inevitable

A new report issued by an international banking group analyzing the use of cryptocurrency by central banks recognizes the usefulness of digital currency while calling into question their overall safety and security.

Study Calls Centralized Crypto Inevitable

The Bank for International Settlements issued a report on Monday saying that cryptocurrency, as issued by central banks, could be beneficial to replace cash as it disappears from the marketplace but warned of problems it sees as inherent to the system.

As central banks around the world are studying the potential of issuing cryptocurrencies of their own, the consortium of banking regulators in Basel, Switzerland released their white paper saying “(Central bank cryptocurrencies or other forms of digital currencies) could bring substantial benefits,”

Cryptocurrency issued by a central bank could be a stable, robust and even safer alternative to cash said the study by the group that includes the Federal Reserve and 59 other central banks of nations that account for about 95 percent of world gross domestic product.

Warnings of Dangers Ahead

This bit of positivity though came with many caveats warning of potential dangers. The report argues that digital currencies could become a rival to cash which would lead to rising interest rates as cash would then pulled from the commercial banking system.

“A general purpose CBDC could give rise to higher instability of commercial bank deposit funding. Even if designed primarily with payment purposes in mind, in periods of stress a flight towards the central bank may occur on a fast and large-scale, challenging commercial banks and the central bank to manage such situations.”

Ensuring the security of transactions and storage of the currency was also a concern addressed in the paper; “cyber-security could be a big problem with central bank cryptocurrencies and digital currencies since they would (be) open to many participants and points of attack.”

There was even some concern in the paper about how issuing cryptocurrency could lead to runs on banks during times of financial crises; though how this would differ or be more likely than the same event involving paper or fiat currency was not expressed.

Perhaps the most important acknowledgment made is that central banks issuing some kind of digital currency is inevitable. That once international regulatory standards are established and uniform payment methods are created “the currencies would have a limited impact on monetary policy implementation.”

Many central banks around the world are already looking into establishing a crypto version of their currency. Sweden’s Riksbank has said that it could issue a so-called e-Krona at any time while the even the Bank of England has a cryptocurrency unit despite Governor Mark Carney’s very vocal distrust of cryptocurrency.